In the context of a challenge under s.67 Arbitration Act 1996 to the jurisdiction of the arbitration tribunal, the Court, faced with the task of interpreting two dispute resolution clauses in a charterparty, which were in part inconsistent with one another, gave precedence to the BIMCO arbitration clauses over a bespoke clause, on the grounds that, objectively viewed, the intention of the parties was that the tribunal be constituted pursuant to the BIMCO clauses, which were the “industry standard” and had the benefits of a mediation provision

Between May and December 2010, the Vessel “ELENI P” (the “Vessel”) was hijacked by pirates. That event gave rise to disputes between those involved in owning and chartering the vessel. By March 2014, the resolution of those disputes had progressed to asking the arbitral tribunal to make findings as to who the duly-appointed arbitrators were and who the proper parties were. The tribunal determined those questions by an award. Transgrain did not accept the award and made an application under section 67 of the Arbitration Act 1996 to set aside the award on the grounds that the tribunal lacked jurisdiction to make it.

The Second Defendant, Eleni Shipping Limited ("Eleni"), was the registered owner of the Vessel. Eleni time chartered the Vessel to the First Defendant, Deiulemar Shipping SpA ("Deiulemar") (who were not represented in the proceedings), by a charter dated 8 May 2009. Deiulemar sub-chartered the vessel to the Claimant, Transgrain Shipping BV ("Transgrain") by a charter dated 15 October 2009. Transgrain sub-sub-chartered the vessel to Vista Shipping Ltd ("Vista") by a charter dated 20 April 2010. The charterparties were on back to back terms save for the period and the rate of hire.

The back to back terms provided for arbitration in London but there were two sets of arbitration terms which, in some respects, were inconsistent with each other. One set of terms (clause 75) provided for a tribunal of two arbitrators and an umpire in the event of disagreement, and another set of terms (the BIMCO arbitration clauses) provided for three arbitrators. Whilst clause 75 provided that if party A commenced arbitration and appointed an arbitrator but party B failed to appoint an arbitrator, then party A could appoint an arbitrator on behalf of party B, the BIMCO arbitration clauses provided that, in such an event, party A could appoint its arbitrator as sole arbitrator. Clause 75 also contained a substantive time bar (claims to be made within 13 months of redelivery) whilst the BIMCO arbitration clauses did not.

Following her release by the pirates, the Vessel was redelivered under all three charterparties on 18 January 2011. The parties then set about appointing arbitrators against one another to resolve the outstanding disputes. The time bar provided by clause 75 expired on 18 February 2012. In September 2012 Eleni gave notice to Transgrain that it was exercising its lien on sub-hires. In October 2012 Dieulemar was adjudged bankrupt in Italy. In March 2013 Dieulemar’s trustees in bankruptcy applied to the Companies Court in England for an order recognising the Italian bankruptcy proceedings as the foreign main proceedings pursuant to the Cross-Border Insolvency Regulations 2006. The recognition order was duly made on 11 April 2013.

In May 2013 Eleni issued an application in the sub-charter arbitration (between Deiulemar and Transgrain) seeking to be joined as a claimant in its capacity as equitable assignee (by virtue of the terms of the time-charter between it and Deiulemar) of Deiulemar's claims under the sub-charter. At the same time it claimed US$5.56m which it alleged was due from Transgrain by way of sub-charter hire in respect of the period during which the Vessel had been detained by the pirates. No such claim had previously been advanced by Deiulemar. In October 2013, Deiulemar executed a statutory assignment of Deiulemar's claims against Transgrain in favour of Eleni.

In March 2014, the three-arbitrator tribunal in the sub-charter reference decided that the BIMCO arbitration clauses should prevail over clause 75 so that the reference was to three arbitrators. The tribunal also decided that the assignment was effective and that the sub-charter reference could proceed directly between Eleni and Transgrain.

The tribunal's decision as to the arbitration clause was not accepted by Transgrain. The tribunal had referred to the BIMCO arbitration clauses in its award but, Transgrain maintained, no mention of them had been made by either party. Transgrain considered the point was significant because, if clause 75 did not apply, then Transgrain would not be able to rely upon the 13 month time bar in clause 75 to defeat Eleni's US$5.56m claim. Thus the decision by the tribunal gave rise to a further dispute between the parties, namely, whether the applicable arbitration regime was clause 75 of the sub-charter or the BIMCO arbitration clauses.

Judgment

The judge began by noting the parties’ respective arguments on the construction point and referred to the helpful general guidance, of Rix J (as he then was) in Finagra v OT Africa Line (fn.1), on how to resolve inconsistencies between parties’ agreed terms.

The judgment noted that the parties had chosen to agree terms which, in certain respects, were inconsistent with each other. Clause 75 provided for two arbitrators and an umpire whereas the BIMCO arbitration clauses provided for three arbitrators. Both clauses had different default provisions. As the parties could not have intended that both should apply, the judge identified the court’s task as being to discover the parties’ objective intention.

The judge noted the difficulty in trying to determine whether clause 75 had been specifically chosen by the parties in preference to the BIMCO arbitration clauses or whether it had been included simply as part and parcel of the incorporation of a number of other clauses. The judge considered that the parties had chosen to incorporate two inconsistent sets of arbitration rules without appreciating the inconsistencies between them. As a result, the judge was unable to accept that clause 75 was a “specifically negotiated clause” that should take precedence over the BIMCO arbitration clauses as a “merely incorporated clause”.

As both sets of clauses referred to the LMAA (London Maritime Arbitrators Association), the LMAA Small Claims Procedure, and the arbitrators being LMAA members, the judge considered that the parties envisaged arbitration being conducted in accordance with the LMAA Rules. The LMAA Rules at the date of the charter were those published in 2006, which noted at the end, as the judge observed, that BIMCO had adopted an arbitration clause providing for arbitration and mediation, which the LMAA recommended for future use. The form of that clause was the one set out in the charter. Accordingly, the judge viewed this as supporting Eleni’s description of the BIMCO arbitration clauses as the ‘industry standard’ and, in his judgment, this was “a powerful indication that the parties, by contemplating that the arbitration would be conducted by members of the LMAA, probably intended (assessed objectively) that the BIMCO arbitration clauses were the applicable clauses.”

Further, the judge noted that the BIMCO arbitration clauses are in two parts, with part (a) dealing with arbitration and part (b) dealing with mediation. The judge’s view was that: “Mediation is now a well accepted adjunct to both litigation and arbitration. One would expect commercial parties to value the benefits of a mediation and that is a further indication that the parties' objective intention was that the BIMCO arbitration clauses were the applicable clauses. This seems to be much the more likely objective intention than [Transgrain’s] suggestion that the parties intended to apply the arbitration regime in clause 75 but the mediation regime in the BIMCO arbitration clauses.”

For the above reasons, the judge concluded that the inconsistency between the parties’ incorporation of clause 75 and of the BIMCO arbitration clauses should be resolved in favour of the BIMCO arbitration clauses. It followed that, in agreement with the tribunal, the judge held that the applicable arbitration regime required three arbitrators, rather than two party-appointed arbitrators and an umpire.

The substantive issue of the timebar in clause 75 was something for the tribunal to rule on and, as the tribunal had not expressed a view on it, the judge said that it would not be appropriate for the court to express any view on that question. That point was for the tribunal to decide in due course.

Comment

The judgment adds usefully to the prior case law on the knotty subject of the proper construction of inconsistent terms in a contract. In the context of an arbitration agreement, this can be troublesome (depending on a party’s perspective), particularly for low-to mid- value claims, where inconsistencies can hamper the prospects of cost effective dispute resolution if used tactically by a recalcitrant party.

The interesting point to note is that the standard BIMCO arbitration clauses were given preference over the bespoke arbitration rider/additional clause. The objective rationale was that, where other factors appeared evenly balanced, the BIMCO arbitration clauses are considered to be the “industry standard”, with the benefit of LMAA endorsement, coupled with the increasing value placed on the benefits of mediation by commercial parties as an adjunct to arbitration.